Corvis plans to make acquisition
Tuesday February 25, 6:05 pm ET
By Richard Waters in San Francisco
Some battered makers of optical communications equipment, left high and dry by the collapse of their market, have no intention yet of packing up and going home, if the once high-flying Corvis is anything to go by.
The maker of long-distance optical networks, which at one time boasted a stock market valuation of $40bn, on Tuesday revealed that it was investing some spare cash to diversify into telecoms services.
Alongside Jerry Kent, a well-known US cable entrepreneur, the company said it would spend $129m to buy a long-distance network owned by Broadwing. The investment comes despite pressure from some shareholders for equipment makers - whose business evaporated with the passing of the tech and communications bubble - to hand back to shareholders whatever cash they have left and close down.
Defending the Broadwing purchase, Corvis said: "We're looking at this as a pure investment opportunity. It also gives us financial diversification and another source of revenue." The company believed the move would add to shareholder value.
The collapse in demand for long-haul fibre-optic networks has effectively left companies like Corvis without a business. It recorded sales of just $20m last year, compared with $188m the year before. Over the same two-year period, it notched up losses of $1.9bn. Broadwing has accounted for about 70 per cent of total sales by Corvis since it was founded.
Corvis' depressed share price reflects a lack of confidence on Wall Street that it can re-establish itself. The company's stock market value, at $270m, is below its current cash position of $458m.
Other optical companies in the same position include Sycamore, whose $820m stock market value is below its $1bn of cash, and optical switch maker Tellium, whose market value has shrivelled to just $64m against a cash position of $171m. Both companies were hit hard by the collapse in optical spending, with Sycamore's revenues tumbling more than 80 per cent last year and Tellium recording just $2m of revenue in its latest quarter.
At the peak of the optical bubble in 1999 and 2000, Corvis raised $1.4bn from private placements and an initial public offering, even though at the time it had generated no revenues at all.
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